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Here's Another Opportunity Department Stores Can't Capitalize On

By James Brumley - Feb 14, 2021 at 8:25AM

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Consumers are finding more and more options to purchase customized apparel -- they're just not buying it from traditional retailers.

The retailing industry may finally be crawling out of its COVID-prompted slump. It's only rebounding, however, back into a pre-pandemic headwind that's still picking off thousands of stores per year. Indeed, the headwind may even be gaining speed in light of the latest apparel trend: personalized clothing. Deloitte estimates customized apparel could account for as much as 30% of the clothing market by 2030. The proliferation of new fabric printing and manufacturing technologies has already ushered some brands into the business, but we're still only in the early stages of the movement.

The bad news: Even the most iconic brick-and-mortar store chains like Macy's (M 2.27%) and Nordstrom (JWN 7.84%) aren't well-suited for this shift, adding to their existing plight.

Woman browsing in a clothing store.

Image source: Getty Images.

Cut from a different cloth

It's possible you're already participating in this paradigm shift. Denim brand Levi's (LEVI 3.13%), for instance, allows online shoppers to choose laser-etched patterns, customized color, and embroidered text for garments ordered online. Athletic apparel brand Nike (NKE 2.70%) lets consumers custom design their shoes from the ground up, picking their own color combinations, sole shapes, and style. Amazon launched Made For You in December, giving consumers a way of designing a custom-cut and custom-colored T-shirt. Even funky foam clog company Crocs (CROX 5.37%) is getting in on the act, letting its e-commerce customers choose the pins they want to adorn their footwear.

None of these are earth-shattering advances for the apparel business, but these customization options are plugging into a powerful trend that's only going to become more powerful as time marches on. Deloitte's outlook on the customized clothing trend explains:

[W]hile only 15 percent of consumers said they tried customized clothing in 2019, 33 percent reported expecting to try it in the future. Drawing on our analysis of how quickly emerging business models have been adopted in the past, we estimate that players offering fully customizable apparel could claim 10 to 30 percent of market share by 2030.

Deloitte specifically credits technological advancements as the chief driver of this trend. The capabilities to offer customized apparel to the mass market simply haven't existed until now.

Stores aren't suited for the shift

To their credit, department stores are upping their games when it comes to providing more personalized service too.

Take the aforementioned Macy's as an example. Most stores offer tailoring services, and shoppers can delegate the work of picking new outfits to personal stylists. The company is also making a point of moving some stores away from the mall closer to residentially rich areas and outfitting locations with new engagement technologies.

Nordstrom is doing even more with the idea of meeting customers where they are in the way they want to be met. Its "Nordstrom Local" initiative calls for small service stations closer to people's homes, offering order pickup, alterations, and more without forcing a shopper to visit a mall. A clothing-customization service would be a natural extension of this existing presence. Deloitte even says retailers will see opportunity in the customization trend as it allows stores to buy fewer goods that end up getting marked down to get them out the door.

Seeing an opportunity and being able to act on it, however, are two different things.

The biggest hurdle department stores may face on this front is cost. Fabric laser etchers and industrial 3D printers can cost thousands of dollars, if not hundreds of thousands of dollars, apiece, for example, and operating them requires training. It's also another function already strained brick-and-mortar stores would need to perform, requiring more employees and more square footage that could be used in other ways. A store chain could certainly centralize the production of these garments at a remote facility, but Levi's and Amazon already have.

Even beyond the cost, however, department stores still face the long-standing challenge of maintaining their relevancy. As big as e-commerce has become, Digital Commerce 360 estimates less than 40% of 2019's apparel spending was done online. Apparel market research outfit Common Thread Collective projects that proportion reaching 60% worldwide by 2024. In absolute terms, the size of the online fashion market is expected to reach $953 billion by 2024, doubling 2018's tally of $439 billion.

Conventional department stores remain too distracted by a bigger war with e-commerce competitors to devote meaningful resources to the customized clothing movement.

Sewing it all together

The takeaway for investors isn't obvious. While customized apparel is a great brand-builder for players like Amazon and Nike, the budding market isn't likely to move the fiscal needle much for either company. Likewise, department stores aren't apt to leverage customized clothing into a turnaround tool.

Nevertheless, it's a development investors should keep in mind. On the off chance a brick-and-mortar name like Nordstrom is able to plug into the trend and meld it with existing services, it could indeed be a growth engine. The more likely opportunity for investors, however, will probably be offered by a direct-to-consumer brand getting into the business, or even companies that supply the equipment needed to manufacture customized apparel.

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Stocks Mentioned

Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
JWN
$26.56 (7.84%) $1.93
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$23.44 (2.27%) $0.52
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,302.93 (3.66%) $81.38
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$115.99 (2.70%) $3.05
Crocs, Inc. Stock Quote
Crocs, Inc.
CROX
$56.14 (5.37%) $2.86
Levi Strauss & Co. Stock Quote
Levi Strauss & Co.
LEVI
$18.44 (3.13%) $0.56

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